The disputes come as the Postal Service is pivoting most of its mail handling from air to ground transportation, a strategy outlined in Postmaster General Louis DeJoy’s 10-year plan for the agency that will slow delivery rates. It also coincides with the agency’s efforts to fill thousands of truck driving jobs ahead of the peak holiday season.
PFS says problems with “dynamic route optimization,” or DRO, software are well documented by the Postal Service’s inspector general, including flawed mileage and travel time calculations, and bill payment processes. The 2019 inspector general report also shows errors on both sides of the ledger, with frequent overpayments that highlight the system’s unreliability.
The issues, transport contractors said in interviews, are especially destabilizing to the small businesses that make up most of the Postal Service’s transportation vendors. Some, including a larger firm like PFS, “factor” their invoices, or sell them to third-party financial institutions, to more quickly access funds to pay their drivers, Waters said. Such cash flow disruptions can snag financing or cost them drivers — at a time when there is a nationwide shortage — and, ultimately, bog down mail service.
“The challenges that the [inspector general] report identified are experienced by all members who are part of the DRO program,” said Greg Reed, executive director of the National Star Route Mail Contractors Association, a trade group that represents mail transportation vendors. “The challenges faced by Postal Fleet in this instance have been faced and are continually faced by members of the association elsewhere.”
The Postal Service declined to comment on DRO, citing active litigation. It also has 60 days to respond to vendors’ claims. But in response to the 2019 inspector general report, Robert Cintron, the agency’s vice president of logistics, told auditors that postal officials and area DRO coordinators reviewed weekly lists of supplier payment concerns, and that employees were being enrolled in new training programs to address questions being raised by workers in the field.
“DRO is an extremely complex undertaking that will fundamentally change the way the Postal Service plans its transportation,” Cintron wrote. “As with any complex undertaking there are many learnings along the way. While the program has been delayed and has had issues, it is imperative that the Postal Service implement the Transportation Management System to both further our business interests and control costs as we support service to our customers.”
The agency has at least one settlement in place with another freight contractor over the program, according to attorneys’ correspondence obtained by The Post and a person involved with the claims, who spoke on the condition of anonymity to discuss proprietary business arrangements.
And another payment dispute claim is expected to be filed Friday: Stingray Distributing, a small trucking company in California, is pursuing $2 million from the mail service, according to its president, Lori VonWald.
Though many of PFS’s former drivers have found other work, the lost income — around $2,000 each, lawyers in the cases allege — created pronounced difficulties for many of them, said Larry Weisberg, an attorney in the Florida driver suit.
“He lost his paycheck for two weeks. It put him behind on everything,” said William Federman, an attorney for former PFS driver Joshua Pair, one of the Oklahoma plaintiffs. “You know, these aren’t wealthy people. These are truck drivers.”
‘The worst thing we’ve come up with in a long time’
When DRO debuted in 2016, it was supposed to cut transportation costs and make the Postal Service more responsive to fluctuations in mail volume.
Americans sent nearly 25 billion fewer pieces of first-class mail — letters, cards, bills and most everything that fits in an envelope — in 2020 than they did in 2010, largely due to changing communication habits. But package volumes more than doubled — from 3.1 billion parcels to 7.3 billion — during that time, fundamentally altering the Postal Service’s mail processing and transportation requirements.
Instead of working the same route every day or week, those vendors with DRO contracts had their itineraries tethered to ever-shifting mail volumes at postal facilities, according to inspector general audits. The program would determine contractors’ routes, ideally cutting down on “deadhead miles,” or miles driven without a load of mail, and miles where trucks traveled with less-than-full trailers.
DRO, which also interfaces with invoicing systems, was designed to pay contractors through GPS tracking and automated truck manifests.
But significant flaws emerged during the pilot program, according to the inspector general report, and VonWald, whose company was enrolled in some of the earliest contracts. The software used to generate weekly truck manifests — the underpinning of the routes necessary and invoice payments — inaccurately recorded trip mileage, travel times, routing, sorting and mail processing times, and equipment requirements, the inspector general found.
The report found that the projected savings from DRO were overtaken by the $16.4 million the Postal Service spent to repair it over its first two years. That is on top of the $55 million it committed to roll it out nationwide from 2016 to 2019.
VonWald of Stingray Distributing — which she said has fewer than 50 employees and grossed $7.4 million in revenue from the Postal Service in 2020 — said the problems were apparent immediately. The San Diego-based company took a pilot DRO contract in 2016, she said, but the bidding system was based on flawed mileage calculations. The Postal Service made multiple attempts to fix it but none of the software patches were effective, she added.
The DRO program does not provide a breakdown of the services for which contractors are being paid, she said.
“There’s no documentation of pay. There’s still no documentation of pay five years later,” she said. “They deposit it in your account, and you have to figure out what it’s for. It’s just been a nightmare since day one.”
The 2019 inspector general’s report advised the Postal Service to “identify and resolve DRO issues before continuing its implementation” and to develop an automated payment process “to ensure suppliers are paid consistently, accurately, and timely.”
The inspector general also said postal leaders should reevaluate the program’s expected cost-savings. In fiscal 2017 and 2018, the report said, the agency spent 9.3 percent more per mile with DRO contracts compared with standard contracts.
The program frequently issued overpayments as well as underpayments, according to vendors and inspector general investigators. In some cases, VonWald said, it was unclear which payments corresponded to which routes, making it difficult to reconcile invoicing problems.
Logistics supervisors who arrange the mail-transportation schedules are known to go out of their way to avoid DRO routes, according to two agency managers who spoke on the condition of anonymity to avoid retribution from higher-ups.
“It’s the worst thing we’ve come up with in a long time,” said a transportation manager in Pennsylvania. “When they first came out with them, I said, ‘This is a lawsuit waiting to happen.’”
For PFS workers, the company’s DRO problems came on suddenly. The company took in $300 million in revenue from all of its postal contracts in 2020, Waters told The Post. And business was on the upswing the following April, when company brass visited with employees seeking feedback on how to expand the business and attract talent, said Jesse Santana, an assistant manager in northeast Florida.
But in mid-May, the corporate bosses returned and said the Postal Service had canceled their contract and that employees would be out of a job by the end of the month, Santana said. Drivers began dropping shifts with little notice or taking jobs with competing trucking firms. Santana, who normally spent his days managing schedules and handling paperwork, found himself behind the wheel bumping up against federal driving-hour caps to move mail shipments.
“Once they lost the contract, they wouldn’t tell us why, they wouldn’t tell us who to talk to or how to file for unemployment,” he said. “It was like we were all on our own.”
The Postal Service prepaid PFS millions of dollars on future contracts — $22 million from September 2020 to March 2021 — after the contractor warned that the DRO underpayments were driving it toward insolvency, according to correspondence obtained by The Post between PFS and agency lawyers.
On April 30, the Postal Service informed PFS that it would terminate its more than 300 contracts with the company on May 28, according to a copy of the termination letter obtained by The Post.
PFS had raised the issue of underpayments with Postal Service contracting officials in years prior, Waters said, but always outside of formal processes out of fear that making an official claim would hurt future contract bids.
“It was all informal. It was all over the phone word of mouth,” Waters said. “It’s a real informal process. It’s a hell of a way to do business, but that’s the way you do business with the post office.”
VonWald said she has exchanged more than 350 emails with postal contracting officials since 2016 about the DRO program, and has even traveled to see postal officials to discuss fundamental flaws with the system. Though she often left those conversations encouraged, she said, progress was fleeting afterward.
“So many people are like, ‘Why would you wait this long?’ I haven’t been,” she said. “I’ve tried and I’ve tried. … And it took me four-and-a-half you-know-what kind of years to finally get to a point where I am confident that I am 100-percent right. And they cannot retaliate on me.”
The lack of business for PFS spelled disaster; it laid off more than 1,200 drivers at the end of May. “They basically closed our doors when they terminated those contracts,” Waters said.
PFS scrambled to address the shortfall. On June 7, David Hendel, an attorney representing PFS, asked the Postal Service if it would provide the money not to PFS but to its payroll provider so its 2,345 employees could get their paychecks on time, according to emails obtained by The Post. The Postal Service did not respond to the company’s request.
On June 14, PFS wrote to employees to tell them their paychecks — which were supposed to arrive the next day — would not be coming. “We are preparing to sue the USPS for nonpayment,” the company wrote. “Unfortunately, it will likely take many months to resolve that claim. We apologize for the hardship we know this will cause.”